Labour and Employment - March 2001 quarter
Data Flash (New Zealand)
NZ: Labour and Employment - March 2001 quarter
As measured by the Quarterly Employment Survey (QES), average hourly earnings (ordinary time) in the private sector increased by 1.5% qoq in Q1. The market had expected +0.9% qoq.
Average wages were 3.1% higher than last year, up from 2.6% in Q4 2000. In seasonally adjusted terms, wages rose by 1.1% qoq, following 0.8% and 0.9% over the previous two quarters respectively. Average hourly earnings for overtime fell by 1.4%, reducing the annual movement from 4.1% to 2.7%.
The alternate Labour Cost Index (LCI) reported a 0.5% qoq / 1.7% yoy increase in private sector wage rates (ordinary time). The LCI adjusts for the changing composition of the labour market and for productivity growth, and thus is best interpreted as a measure of unit labour costs.
The QES recorded a 0.5% seasonally adjusted decrease in full-time jobs and a 1.9% rise in part-time employment. Overall employment in Q1 fell 0.2% qoq but was 3.1% higher than a year earlier.
Hours worked fell by 0.6% qoq in Q1, but were up 2.3% on last year. The employment data implies some downside risk to our forecast of a 0.5% rise in Q1 employment, as measured by tomorrow's Household Labour Force Survey (HLFS).
Today's data was consistent with the RBNZ's March forecast for labour market activity and GDP, but clearly exceeded the Bank's expectation for wage inflation. Using the US convention of annualising quarterly seasonally adjusted data, wage inflation has accelerated from 3.2% to 4.4% over the last two quarters. While compositional factors appear likely to have contributed to the above-market outcome, it is consistent with the fall of the unemployment rate to a 12 year low and evidence of increasing skill shortages. For a while now the labour shortage indicator from the Quarterly Survey of Business Opinion (QSBO) has pointed wage inflation heading towards 4%.
Wage inflation of 4% yoy would be of little concern in an economy with significant productivity growth. However, New Zealand's productivity performance has continued to disappoint. Over the past year, hours worked exceeded GDP growth by around 1%, implying negative productivity growth and that unit labour costs have been rising at a rate significantly above the RBNZ's medium-term target of 1.5% inflation. Combined with continued cost pressure from the delayed pass-through of the NZD depreciation, that suggests that the RBNZ will struggle in getting CPI inflation back below 2% on a sustained basis.
We expect the prospect of external cost pressure and rising labour costs to cause the RBNZ to remain cautious regarding further interest rate cuts. Continued global uncertainty makes a 25 bps reduction in the OCR the most likely outcome after next week's Monetary Policy Statement (9.00 am NZT, 16 May). The case for a 50 bps cut - already unlikely in our view - has clearly weakened after today's data.
Ulf Schoefisch, Chief Economist, New Zealand
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